The widespread collapse of the dollar is gaining momentum. The dollar index collapsed last week to its highest level since the crisis in March 2020. The DXY lost 4%, falling to three-month lows near 106.1. Thursday’s drop was the highest in seven years.
Without exception, all the famous traders who trade through forex brokers emphasize the importance of the psychological component. Alexander Elder, Warren Buffett and George Soros spoke about it. Psychology determines the attitude to the market, as well as a trader’s ability to follow the rules of the trading system.
It’s difficult to develop self-control skills, but it’s a solvable task. Basically, it all comes down to always following the established rules. This applies to market evaluation, determination of working volume, and analysis of transactions already made. A trader’s head must always remain “cool”. Only with a somewhat indifferent attitude to the market is it possible to make stable profits from trading.
What was going on with the dollar earlier?
The dollar declined four out of five days this past week; Thursday’s drop, according to Bloomberg, was the highest since late 2015. Pressure on the U.S. currency intensified after released data showed that U.S. inflation came in below expectations, making it less likely that the Fed will continue to aggressively raise rates.
“Weak U.S. inflation data takes fears off speculators’ radar that the Fed will make another 75-point hike and that the key rate will exceed 5% in this monetary cycle,” notes FxPro’s analyst team.
Markets have increased the likelihood of a rate hike down. According to Fed rate futures, the probability of a 0.50% rate hike at the December meeting rose to 80.6% from 61.5% a week earlier.
Risk assets were also supported by reports that China eased isolation measures related to the COVID-19 pandemic. China’s State Council announced a reduction in quarantine for infected individuals from seven to five days.
Citibank believes U.S. inflation data will set the direction of the dollar for the rest of the year.
- Five bullish factors are emerging for EUR/USD, Scotiabank points out. Historically, December is the strongest month of the year for the euro.
- EUR/USD could rise to 1.05 in the short term, Nordea believes.
- USD/JPY is about to test the low of August 23 around 135.80, BBH believes. GBP/USD is ready to rise to the highs of August 26 around 1.19.
- The peak of the dollar may have already passed, but it is too early to talk about a sustainable downtrend of the dollar, say ING.
- The dollar will be much weaker in six months, but in the coming weeks be careful, warns Societe Generale. The bank isn’t 100 percent sure it has seen lows in EUR/USD.
- A Bank of America survey showed that the dollar’s peak is still ahead. Global funds surveyed by the bank are still wary of sustained inflation.